Kuwait – Mubasher: Last week started with a lower U.S. dollar against its major counterparts as recovering oil prices lent some strength to commodity linked currencies, said National Bank of Kuwait (NBK) in a report.
By the end of the week, the greenback managed to regain some of its losses especially against emerging markets currencies as the strength in commodities and oil prices happened to be short lived. The U.S. dollar ended the week slightly lower against the big five despite expectations of an imminent rate hike by the Fed and as investors started to shift their focus towards the pace of rate hikes beyond December and well into 2016, added the bank.
According to NBK, the Fed’s looming policy decision is indeed making it harder for investors to predict the actions of other central banks and to work out where exchange rates are headed. Next week’s event could be pretty quiet in the near term for the major five currencies, but it remains a major episode for emerging market currencies as we continue to witness lately. Further delay of a rate hike is likely to increase uncertainty and achieve nothing Useful.
Given the widespread agreement that the Fed will hike, a strong initial market reaction is unlikely. Beyond the first hike, the outlook for risk assets will be determined by how the disagreement between the market and the Fed about the pace and extent of hikes gets resolved
On the foreign exchange side, as mentioned earlier, the U.S. Dollar Index opened the week on a strong footing as market continued to react to further indications of policy divergence between the Fed and other major central banks. The dollar index strength was also short lived this week as it quickly fell to a low of 97.22 amid the jump in commodity linked currencies on Wednesday. By the weekend, even with commodities tumbling, it was able to regain some of its losses and closed at 97.56.
The euro witnessed a better performance, rallying to a high of 1.1043 against the U.S. dollar as the momentum from the previous. ECB decision continued to dictate the currency’s movement. The single currency managed to lose some of that momentum and close the week at 1.0986.
The sterling pound fell against most of its counterparts after the release of the Bank of England meeting minutes, which indicated that interest rates are likely to remain at record lows for longer. Additionally, the minutes showed that policymakers expect inflation to remain subdued on the back of low oil prices and slow wage growth. However, the Pound managed to reach a high of 1.5240 as investors sold the dollar across the big five. Finally, the Pound closed the week at 1.5213.
The Japanese yen gained against the U.S. dollar after Japanese final GDP figures showed that the economy grew in the third quarter and avoided recession as seen in the initial estimates. The dollar Yen opened the week at 123.20 and dropped to a low of 121.05 by the middle of the week. However, the cross rebounded by the end of the week and closed at 122.01
The number of people who filed for unemployment claims in the U.S. climbed more than expected last week, but remained below 300,000 indicating further strength in the U.S. labor market. Initial jobless claims increased by 13,000 to 282,000, exceeding market expectations of 270,000. Although, initial claims remain relatively low, it marked the highest reading since late-July. The four-week average for new claims also rose to 270,750, up from 269,250 a week earlier.
